financial statements; Financial statement analysis- Inter firm and intra firm analysis. • Financial Statements is simply a declaration of what is believed to be true about an enterprise, communicated in monetary terms. It is a summarized form of account balances, arranged in meaningful and logical order. The facts and concepts they portray can be readily interpreted and used as bases for decision by the people, interested in the affairs of the business. These statements are prepared for the purpose of presenting periodical review of the progress made by the firm. Financial statements are also called financial reports. • Smith and Asburne define financial statements as “ the end product of financial accounting in a set of financial statements prepared by the accountants of a business enterprise- that purport to reveal the financial position of the enterprise, the result of its recent activities, and an analysis of what has been done with earnings. • All types of business enterprises, irrespective of the form of ownership such as sole proprietorship, partnership firm, joint stock companies, cooperative societies; and nature of business such as trading, manufacturing, service rendering prepare financial statements for the desired periodicity. • In India, Sec 210 of the Companies Act has made it mandatory that at the annual general body meeting the Board of Directors of the company shall present before the members the audited profit and loss account and balance sheet. Nature of financial statements • Recorded facts – It refers to the data taken out from the accounting records. The records are maintained on the basis of actual cost data. The original cost or historical cost is the basis of recording various transactions. • Accounting Conventions – Certain accounting conventions are followed while preparing financial statements. The use of accounting conventions make financial statements comparable, simple and realistic. • Postulates – The accountants make certain assumptions while making accounting records • Personal judgments – Even though certain standard accounting convections are followed in preparing financial statements but still personal judgment of the accountant plays an important part. Objectives of Financial Statements • To provide reliable financial information about economic resources and obligations of a business firm. • To provide other needed information about changes in such economic resources and obligations. • To provide reliable information about changes in net resources(resources less obligations) arising out of business activities. • To provide reliable information that assist in estimating the earning potentials of business. • To disclose, to the extent possible, other information related to the financial statements that is relevant to the needs of the users of these statements. Types of financial statements • Financial statements primarily comprise two basic statement; – Position Statements or the Balance Sheet – Income statement or the Profit and Loss Account. • However, Generally Accepted Accounting Principles(GAAP) specify that a complete set of financial statements must include; – A balance sheet – An income statement – A statement of changes in owners accounts – A statement of changes in financial position.